Ron Perelman

Ron Perelman, one of the wealthiest men in America, sits down for his first ever Q&A.

The story of Perelman's rise to the top of the corporate world
parallels the extraordinary economic expansion of the 1980s. He built
his fortune by buying and building companies, unlike corporate raiders
who merely bought and sold companies during that period.

Today, Perelman's efforts are focused on building a
television-broadcasting empire. He is mentioned in the same breath as
Rupert Murdoch, Ted Turner and Time Warner. Because of Murdoch's $500
million investment in Perelman's television stations, which are now
affiliated with Murdoch's Fox Network, Perelman is even seen as a
potential competitor against the big three networks: NBC, ABC and
CBS. At the same time, he has used his investment in Marvel
Entertainment to build a portfolio of marketable "action characters"
similar to the Walt Disney Company model of animated characters.

Throughout this extraordinary period of success, Perelman has remained
one of the least-known businessmen in the country. He has frequently
been photographed at society events (holding an ever present cigar),
but has never before given a one-on-one, question-and-answer
interview.

In this wide-ranging session with Cigar Aficionado Editor and
Publisher Marvin R. Shanken, Perelman discusses his love of cigars and
his investment in Consolidated Cigar Corporation, as well as how he
has built his business. He shares his own major disappointment, the
acquisition that got away--Gillette. Perelman also talks for the first
time about his relationship with investment banker Michael Milken and
about his firm belief that there's nothing wrong with making money.

Perelman: This is my first interview.

Shanken: Ever?

Perelman: Yes.

Shanken: In New York magazine it said you rarely give
interviews.

Perelman: This is the first one. I've given background before, but
never a Q&A.

Shanken: All the stories I've read about you have a lot of
information, but they're never in first person. I'm flattered and
honored.

Perelman: It's a pleasure to be here. I've always been afraid of the
press. My point of view is that the press could never do me any good,
just a lot of harm. And as a result, I just tried to avoid the
press. Then we got to a point where that was impossible. I've finally
come out of the closet a bit.

Shanken: Let's get right into the interview. It's very unusual for
someone to buy a company, sell the company and then buy the same
company back, as is the case with Consolidated Cigar Corporation. It's
particularly novel when we're talking about a product like a cigar,
which is so personal to you. Could you tell us why you acquired
Consolidated, why you then sold it and why you decided to buy it back?

Perelman: It's actually very simple. We first saw the company when
Gulf & Western owned it. I had negotiated with Charlie Bludhorn
and Martin Davis. We reached all the economic points of agreement, but
the deal fell apart on technical issues, such as the representations
and warranties that we had wanted from Gulf & Western, and that
they were reluctant to give. [Consolidated] then ended up being sold
in a management buyout. This management group ran into some real
personality issues among themselves and ended up in serious
litigation, with [Consolidated] suffering because of the lack of a
focused manager. I reached out to one of the management group to see
whether they'd be interested in selling. Of course they said yes, and
we very quickly negotiated a transaction.

Shanken: Did you want to buy Consolidated because it was a business
that held a lot of potential for growth or was it because it was a
cigar company?

Perelman: I have stayed away from buying companies that I don't think
I'd enjoy owning. That's from the point of view of having a product
that I think makes people happy or a product that does some good or a
product that is just fun and interesting to own and operate. And
Consolidated Cigar fit all that. It's a company that I thought had an
enormous amount of potential but also had a product that I thought
brought people a lot of pleasure. It's also a product that I've got
some identification with because I'm such a strong smoker. We bought
it, and Theo Folz, who is currently the chief executive officer, was
wooed away from another company to join us, and he's done a fabulous
job. Then it reached the point where I thought that from a financial
point of view we were offered a very attractive price for the company,
and I agreed to sell it.

Shanken: Was it for sale?

Perelman: No, it wasn't for sale.

Shanken: An investor came to you and said we'd like to buy your cigar
company?

Perelman: The LBO funds were very flush with capital, they needed to
do transactions, and they were paying up for transactions. And from a
financial point of view, the deal was an interesting transaction. But
I still really liked the company and really liked the product, so that
when I heard that they wanted to sell it again out of the LBO fund, we
approached them and said we have serious interest, and in very short
order, we negotiated a transaction and bought it back.

Shanken: When you bought it back, you paid a substantially higher
price.

Perelman: Yes.

Shanken: You sold Consolidated at what you thought was a very high
price in 1984. And then you bought it back at a price well above what
you sold it for? According to published reports, you paid $118
millionfor it in 1984 and sold it for $138 million in 1988 and then
reacquired it for $188 million in 1993.

Perelman: Theo did a fabulous job in the two years that he ran it for
the LBO fund, and it was worth more when we bought it back than it was
when we sold it. So it still was a very interesting financial
transaction for us to buy it back. I'm glad to be back in the
business. I love the business.

Shanken: How do you decide which companies you are interested in
buying?

Perelman: There's a financial profile for the companies that we'll buy
and won't buy. They've got to be stable cash-flow generators, they've
got to be non-capital-intensive cash-flow generators, they've got to
be nonfashion and nonfad and non-high-tech. And other than these two
categories--fashion and high-tech--we'll look at anything. I look with
more interest at companies that excite me with their product line.

Shanken: You say nonfashion and non-high-tech. Isn't Revlon fashion?

Perelman: No. It might be in a given year. In a certain season,
certain fashion colors--that this year reds are more popular than the
pinks--but we just change the blend a little bit. Cosmetics are a
product that has been around for thousands of years and will be around
for thousands of years in the future, and you know, besides a slight
variation in color, there's really no shape difference or length
difference.

Shanken: In terms of Consolidated, it seems as though the repurchase
in 1992 was perfectly timed to go with the cigar renaissance. Maybe
you didn't know it six months before, but it was very clear six months
later that there was something exciting going on in the cigar
market. What is your outlook for the future of cigar smoking, given
the social climate and the antismoking restrictions and regulations
that seem to be spreading across America?

Perelman: We're very optimistic about consumption in the long
term. The baby boomers have shown a real interest in smoking
cigars. You now have real public cigar smokers--celebrities, sports
figures, movie personalities and the like--so that there is sort of an
endorsement by the celebrities of cigar smoking and the pleasures
associated with it. There are more smokers now than, say, five years
ago, but of course consumption is way down from its peak.

Shanken: But are you concerned about owning a business in an industry
that has so much negative pressure and restrictions from government?
It's not cigarettes, but cigars still suffer from the same smoking
restrictions.

Perelman: It's less pressure from government than it is social
pressure as to where cigar smoking is permitted and socially
acceptable. But I think even that is changing a bit. I think
restaurants that previously would not allow cigar smoking are now
becoming more lenient. If they allow cigarettes, they'll allow cigars
in the same smoking section. And I think that gradually the public is
getting more used to and more accepting of cigar smoking in public
restaurants and other facilities. We are very optimistic on cigar
usage and consumption.

Shanken: Earlier, you said you like companies with stable cash flows
that don't need a lot of additional investment on the part of the
buyer. But you bought a company that today, due to sharply increased
sales,has a very significant back-order situation: it is not able to
produce and ship enough cigars to meet retail orders or the demand in
the marketplace. Do you have plans to expand your facilities and your
manufacturing personnel? What has your directive been to Consolidated
to handle this happy problem?

Perelman: We are looking at expanding our facilities both in physical
size and capacity vis-à-vis the workforce. But that is a slower
process because skilled hand laborers are required, and it is not
something that can be taught overnight. But, clearly, we are committed
to filling the demand as it continues, we hope, to increase. The
managers will do whatever they think is necessary to run the business
efficiently. If it means counting a higher level of income to support
a higher level of sales, they would just do that routinely.

Shanken: Have you discussed with Consolidated's management new brands,
new approaches, new marketing? Consolidated is the largest producer of
cigars in America, both in the midprice, as well as...

Perelman: Mass market.

Shanken: Right. And you have a number of different brands . Has there
been a reexamination of investment for advertising or for marketing?
So far, you've concentrated on only a few of your brands. Are there
any plans at this point to become more aggressive given the strong
U.S. market for cigars?

Perelman: I don't think so. I think we've got brands that have been
established for many years, particularly the old Cuba brands. On the
mass-market and premium-mass level, we are coming out with some new
products; but on the premium level, we're just going to be consistent
supporters of our existing brands, and unless an acquisition of an
existing brand comes along, we're just going to support our existing
brands.

Shanken: What are the sales of Consolidated?

Perelman: Around $130 million. In 1994, premium cigar units [from the
Dominican Republic, Honduras and Mexico] sold were 40 million and
mass-market cigar units were 900 million.

Shanken: Do you recall what it was 10 years ago when you originally
bought it?

Perelman: It was around, I would guess, $85 million to $100 million,
something like that.

Shanken: And now it's $130 million. Is the level of profitability
greater?

Perelman: Much greater.

Shanken: Consolidated owns a number of prestigious Cuban brand
names--like H. Upmann, Montecristo and Por Larrañaga. How do
you plan to take advantage of these trademarks when the trade embargo
with Cuba is lifted?

Perelman: I think when that happens--and it's probably more likely
than ever to happen in the next five years--we'll have to see what
opportunities exist for us to take advantage with regard to Cuba.

Shanken: Well, do you plan to establish operations in Cuba when the
embargo's lifted?

Perelman: I think we'll wait and see what the world looks like
then. You know, clearly, when Cuba opens up, there's going to be a
market for Cuban cigars, and we are going to want to be a player in
that market. If you look at the pricing of a Cuban cigar currently
sold in Europe and the Far East, it's a $15-plus cigar. The likelihood
of it replacing the current $5 to $6 premium product in the United
States is not great. But there will be a segment that will pay the
price to buy a Cuban cigar. But those cigars will have to be blended
in and layered on top of the existing pricing structure and the
existing products available. We'll have to see what the opportunities
are then. It won't happen overnight.

Shanken: Isn't it every cigar lover's fantasy--like a wine lover's to
have a château and a vineyard in Bordeaux--to have a factory, a
business in Cuba?

Perelman: If you're asking me whether I'd ultimately like to be there,
absolutely. But we'll have to see what the opportunities are at the
time.

Shanken: But it almost doesn't even have to be a sound business
judgment.

Perelman: Yes, it does.

Shanken: On Route 29 in Napa Valley there are over 200 wineries
of which probably 50 wineries were uneconomic from day one. All the
wineries were built in the last 15 years without any regard to
investment or business reality. Rich people came in, they wanted to
have a winery, they wanted to build a château. They'll never
make a profit. The standing wine-industry joke is: Do you know how to
make a small fortune in wine? Start with a large one.

Perelman: We've been very disciplined in staying away from
nonfinancial, ego-gratification-type businesses.

Shanken: Just this one time, Ron?

Perelman: OK. If the right opportunity comes along, it might be
interesting. And we'll look at it anyway.

Shanken: What kind of cigars do you smoke?

Perelman: They [Consolidated Cigar] actually do an H. Upmann for me at
about a 38 ring gauge, a long, narrow cigar that I love.

Shanken: Is that the only cigar you smoke?

Perelman: I'm smoking one of yours now, which is great. I'm going to
come back here once a week and smoke cigars.

Shanken: When you sold Consolidated did you continue to smoke
H. Upmann?

Perelman: No. I wasn't getting the product then. I was smoking
Davidoff, a little bit of Cohiba. But our cigars coming out of the
Dominican now are very close to--if not as good as--the Cuban product
that I was getting.

Shanken: Have you ever visited Cuba?

Perelman: No. I've been scheduled to visit and unfortunately had
business conflicts, but I am very anxious to go down. Absolutely.

Shanken: Do you recall how you first got interested in cigars? Did
your father smoke cigars? Did your grandfather?

Perelman: I remember specifically. I was about 26 years old, and I was
at a meeting with about 12 people, and the meeting was dragging and
dragging and dragging. Across the table from me was one of our
lawyers, who pulled out a cigar, and I'd never thought about smoking,
but it looked like he was enjoying it to such a great extent that I
wanted to try one. So I had one that day, and from that day on, I have
smoked cigars.

Shanken: Had you smoked cigarettes before then?

Perelman: No.

Shanken: Who was the lawyer? He deserves recognition.

Perelman: Laddie Montague.

Shanken: Your father has never smoked cigars?

Perelman: No.

Shanken: Has he ever commented on your smoking cigars?

Perelman: No.

Shanken: Why do you think people like you and me and all the Cigar
Aficionado readers out there have been drawn to cigars? What is the
pleasure? What is the factor that makes us so passionate?

Perelman: I think it gives real pleasure. It gives me a sense of
relaxation that almost nothing else does--except maybe a glass of
wine. It gives me a real sense of being able to have a moment of
luxury in the middle of whatever I'm doing.

Shanken: Tell me, because the people reading this magazine have the
same frustrations as you do. Do you steer clear of restaurants that
don't welcome your cigar? Or do restaurants accommodate you because
you're Ron Perelman?

Perelman: No. I think I pretty much gravitate toward restaurants that
allow cigar smoking, partly because it's so important to me to smoke,
particularly after dinner. But from a purely financial point of view,
if somebody is not going to support my business, I'm certainly not
going to support their business. I think that today, most of the good
restaurants, particularly in New York, do allow smoking.

Shanken: What are some of your favorites where you know you're welcome
to smoke?

Perelman: '21' Club, Le Cirque, Coco Pazzo, Harry's. They're mostly
restaurants that have an old New York flair, like '21,' or a heavy
European clientele who have been and continue to be strong cigar
smokers.

Shanken: I assume when you travel outside the United States it's a
nonissue.

Perelman: It's a nonissue. The biggest problem is in California
because there nobody smokes. No place.

Shanken: So what do you do?

Perelman: I don't smoke.

Shanken: Maybe it's time to buy a restaurant in California.

Perelman: The laws there are stronger for smoking sections and
prohibition than anyplace else. There is a real animosity toward
smokers amongst the patrons.

Shanken: The crime is that there are more serious and sophisticated
and knowledgeable cigar aficionados in L.A. than maybe anywhere else
in America. I mean they really love their cigars, and for these people
to have so few places to go, has to be frustrating.

Perelman: There are cigar dinners. But it's probably the most
health-conscious community in America.

Shanken: Let's move on. You've looked at many different industries,
and by owning Revlon, among others, you must be an experienced judge
of consumer advertising. Is the cigar industry's advertising of
premium cigars up to par?

Perelman: No. I think it's very boring. I think it's much too laid
back. I think that it's not of the new generation of smokers yet. I
think that will come. Now with the resurgence of interest, I think
just by definition you're going to get a better quality marketing
program, including advertising. But that has not yet appeared.

Shanken: The big impetus for the cigar industry is young guys in their
20s and early 30s who've entered the market for the first time. They
represent a huge opportunity. And on a much smaller scale, women. It
doesn't seem like anyone has gone after those markets, each of which
may represent a big marketing opportunity. Why is that?

Perelman: I think you're right. I think the younger smokers will start
to be viewed much more seriously by the manufacturers. Women are still
very rare. It's sometimes used today by a woman as a device to show
that she's hip or liberated or a worldly person. The industry has
tried for years to induce and entice women to smoke, and it hasn't
worked.

Shanken: Let me move to a few other subjects. The recent creation of
New World Communications attracted a significant investment from
another significant media player, Rupert Murdoch. The deal has
catapulted you into being a major player in the media world. How do
you envision the television-broadcasting world changing? What do you
see for the future? How did you create, almost overnight, this major
television business?

Perelman: We were presented with a transaction a little over a year
ago to buy the old SCI stations, which was our first station
group. It was a very intriguing financial acquisition. There were
seven stations, top 20 markets. It was Detroit, Atlanta, San Diego,
Boston, Milwaukee, Cleveland and Tampa. Good markets. We were able to
buy those at a price of slightly less than six times cash flow. It was
a very good financial transaction. We had never put on our screen that
one of our top industries to go into was TV broadcasting. But that
transaction made such enormous sense that we entered the industry. We
then decided once we were in it to be really in it. We contracted to
buy two other station groups, the old GACC (Great American
Communications Company) and Argyle Communications stations. On a
parallel track, we had several years ago purchased a small television
producer called New World Entertainment. And putting the two together
made enormous financial sense to both companies, in that we had a
captive market for the production of our product. Out of the blue
comes Rupert, who wants to increase his affiliation base, and we were
able to do a transaction that allows us a 10-year affiliation
agreement with Fox.

Shanken: Fox had just gotten the NFL?

Perelman: Right. The fact that CBS lost the NFL, and the fact that Fox
got the NFL were important to us. We got an investment of somewhere
around $500 million and, at the same time and probably more important
than either of those two, we got programming clearances--not
commitments, clearances--on the Fox-owned-and-operated stations. So
that we now have, between our o&o's [owned and operated] and the
Fox o&o's, about a 45 percent carry of our product. We have a
station base now that allows us to clear 45 percent of the country
from day one, which was as important as any of the other two elements
in the transaction.

Shanken: Murdoch came to you with this proposal?

Perelman: The proposal came about at a meeting between Bill Bevins,
who runs New World, and Murdoch.

Shanken: You were able to get fresh capital so that on a market-value
capitalized basis, it put the value of the business at a much higher
level.

Perelman: It was a good move for everybody. And that's the best kind
of deal: when both players leading the transaction are happy that it's
a fair transaction.

Shanken: And how did it come about that you then acquired the
production business of Brandon Tartikoff?

Perelman: I thought that he was a known talent--he is a brilliant TV
programmer. He had left two corporate positions--one at NBC and one at
Paramount--to set up his own entrepreneurial company. We came along at
a crucial point for him when he was at a crossroads of whether to
continue his own business or affiliate with a larger company. It was a
perfect marriage of facilities and talent. And he's a fabulous guy.

Shanken: Of course there's the Marvel Comics situation, too. I can't
imagine that when you bought Marvel you had any idea what a score that
was going to be.

Perelman: That's correct.

Shanken: Having said that, you now have those comic-book characters
who are available to you in terms of producing movies and other
programming. You almost could be a mini-Disney.

Perelman: Right. It is a mini-Disney in terms of intellectual
property. We are a developer of characters just as Disney is. Disney
's got much more highly recognized characters and "softer" characters,
whereas our characters are termed as action heroes. But at Marvel we
are now in the creation and marketing of characters. The comic-book
business--which was 95 percent of the business when we bought
Marvel--today represents about 15 percent of the business.

Shanken: There was a significant piece in The Wall Street Journal four
years ago where you were labeled a corporate raider. But it has really
come down to the fact that you are a business builder, which is far
different from a raider. You started in business with your father many
years ago. Do you feel that the experiences with your father were in
large part your MBA program?

Perelman: My experiences and education in working with and for my
father were probably the most valuable that I've done and certainly at
least as valuable, if not more so, than an actual MBA that I got in
1966. We had a unique working relationship. He allowed me--even forced
me--to take on responsibility and authority at a very young age, far
beyond what I thought was my capacity. So that very early on I got a
lot of experience in dealing in the operations of businesses. And I
grew up operating businesses. I left the family business in 1979 over
an issue that I really wanted to start out on my own. It caused some
tension initially, which we subsequently removed. But my experiences
and education in working at the family business were absolutely
critical in the development of my capacity.

Shanken: Your father is alive today?

Perelman: Yes.

Shanken: He must be very proud of you.

Perelman: You'll have to ask him.

Shanken: What and when was your first real break? I am sure that
whatever it was, it had high risk.

Perelman: The core was a company called Cohen Hatfield Industries that
I purchased control of in 1979. It was a low-risk transaction. It was
then in the wholesale and retail jewelry business. And I bought 40
percent of the stock from one seller. It was an American Stock
Exchange-listed company, and I bought it at, I think it was 35 percent
of stated book value, and stated book value was understated by about
40 percent because gold and diamonds had started a real run-up at that
time. The point was to get out of the jewelry business and use those
proceeds to invest in a business that I felt more comfortable
with. Our first large transaction after Cohen Hatfield was MacAndrews
& Forbes.

Shanken: How big was the jewelry company at the time?

Perelman: Sales of under $50 million, $40 million or $50 million. I
bought my 40 percent for about $1.5 million.

Shanken: That isn't bad.

Perelman: And that allowed us to take the next step of buying
MacAndrews & Forbes, which was a New York Stock Exchange company,
and their two businesses, plus cash--they had just gotten out of the
textile and fiber business, and they had about $15 million in
cash. They were in the chocolate business. They were the largest
independent manufacturer, other than Hershey, of chocolate for food
manufacturers, and they were in the licorice business, being the
largest supplier of licorice extract to the tobacco industry.

Shanken: And how big was that company?

Perelman: They did probably $120 million. We then sold off the
chocolate business.

Shanken: You bought all of MacAndrews & Forbes?

Perelman: We bought the whole company. It was a public company. We did
a public tender.

Shanken: And what did it cost to buy the company?

Perelman: About $45 million to $50 million. We then sold off the
chocolate business for the $45 million that we had paid for the whole
thing. We were left with the licorice business. But if you look at 80
percent of the transactions that we've done, except for synergistic
transactions within existing companies, they were companies that had
several unique operations with a core business that we wanted to keep,
and other unique or separate businesses that we wanted to exit from.

Shanken: How did you finance the MacAndrews & Forbes acquisition,
since that was your first big purchase?

Perelman: We did it with funding from the banks, primarily Chase and
First National Bank of Boston, and then found ourselves in a position
to quickly repay that because of the sale of the chocolate
business. We effectively ended up owning the flavors business for
nothing.

Shanken: So Technicolor came after that?

Perelman: And Technicolor had the same profile. We paid $125 million
for Technicolor. It was clear that their theatrical film
processing/videocassette business was a business we wanted to consider
a core business and build on. It had four or five peripheral
businesses that we wanted to immediately exit from. And we got about
half our purchase price back with the sale of peripheral businesses,
and we were left with a core business that we could grow. We took that
business from a $5 million cash-flow generator when we bought it to
just under a $100 million cash-flow generator when we sold it.

Shanken: When you bought Revlon, what year was that?

Perelman: '86.

Shanken: From the media coverage at the time, it seemed that the
Revlon purchase ended up forcing you to dig in and get involved with
the nuts and bolts of the company right down to the local plants and
so forth. Did you know going in that this was going to be such a
complicated high-risk investment?

Perelman: Well, it was neither complicated nor high risk. It was a
highly visible investment. It was a highly thought-out transaction. It
was probably the largest entrepreneurially managed hostile takeover to
date in 1986. And as such it got an enormous amount of press
attention. But the profile of the company was exactly what I had
described earlier. Revlon was a company that had several pieces, some
of which we clearly wanted to sell immediately, some of which we
wanted to hold for a longer period of time, and some we wanted to hold
forever. And the piece that we were most attracted to was the
cosmetics piece.

Shanken: So there was never a time when you stayed up all night,
saying what the hell have I got myself into?

Perelman: No.

Shanken: So a lot of the press reports were false?

Perelman: I'm not saying that everything went as I had planned, but
there was never a point where I said to myself, why did I get myself
into this?

Shanken: I'm aware of many of your investments. They all seem to be
very successful. What was your biggest failure?

Perelman: Hmmm.

Shanken: Have you had any failures?

Perelman: Well, I think Revlon has been the most difficult company for
us to manage. I think that we fixed it early on in 1986 when we bought
it. Then we did not pay enough attention to it for a while, and it
suffered from that.

Shanken: How can you not pay attention to a business doing $2 billion
or $3 billion?

Perelman: Because we started paying attention to other things. We
were at the same time doing a series of other transactions. We had
bought a bank in Texas, which required a lot of our time and
attention. Over the last two years, we've gotten Revlon to the point
where it's better than ever, and I am very happy with that. I am very
proud of that.

Shanken: When you bought Revlon, what was its cash flow? What is its
cash flow today?

Perelman: Cash flow was about $15 million in 1984, 1994 cash flow was
around $200 million and 1995 significantly higher than that. There's
been a very good job done in the business of Revlon.

Shanken: Is there any one company that you get more involved in the
day-to-day managing, or at this point are you pretty much an overseer
of all the businesses?

Perelman: I divide my time close to equally among them all. Every
month we have in-depth management meetings on the operations of each
of the units. Depending on the company, I'll either get daily or
weekly or, in some cases, monthly numbers. But today the businesses
have been in our portfolio long enough that we've got a shorthand with
operating management of those companies. They know what to be
sensitive to and what surprises they want to alert me to, so that
they're not surprises. They understand their businesses very well.

Shanken: It's fair to say, at this point, that each business, is run
by a...

Perelman: Each of our businesses is run by an independent
decentralized manager.

Shanken: With a strong leader.

Perelman: With a very strong manager.

Shanken: I want to go back to this corporate-raider image. Obviously,
the title was in vogue, so that anyone who bought a business was a
corporate raider. Is there any particular reason why they threw you
into the pot with all the others if you have basically stayed with the
businesses that you've acquired?

Perelman: At the time I think that anyone doing a hostile deal--Revlon
clearly was a hostile transaction--was termed a "raider." And we got
sort of locked into that, into that timing.

Shanken: There were a few deals that you ended up walking away from or
that they paid you off or bought your stock back. Were there any deals
that you didn't conclude that you regret?

Perelman: There is only one deal that fell into that category of
walking away from it. In others we were overbid. But there was only
one transaction where we sold the stock back to the company. That was
Gillette. And that was probably the deal that was the biggest
disappointment.

Shanken: Because it got away or because you really believed that this
was a business you could grow?

Perelman: I think it was a transaction that had fabulous potential as
evidenced by the fact of what it's done. And a transaction that we
desperately wanted to get accomplished and...

Shanken: Who blocked you? What happened?

Perelman: It was a New York Stock Exchange company. What happened was
very interesting. We had made this tender for Gillette. The company
was very aggressive in fighting to remain independent and there came a
point.... The fighting didn't bother me. There came a point when their
investment banker, Eric Gleacher from Morgan Stanley, who had been our
investment banker in Revlon, came up to me on a Sunday morning and
said they will sell a blocking preferred [a block of stock that makes
it more difficult to put together a controlling percentage of stock]
at 20 percent to another corporate institution. We didn't hear the
name at that time. It turned out to be Ralston Purina, and we were
faced on that Sunday with the prospect of fighting two corporate
establishments and a different kind of capital structure. With Ralston
having a 20 percent blocking preferred, that made it appear very
difficult for us to get that transaction completed. During the day on
Sunday I agreed to sell our stock to Ralston. Gillette came back to us
in the middle of the night and said they were unable to finalize their
agreement with Ralston, and would we sell the stock to [Gillette] that
night? And they'll sell the stock to Ralston the next day. And I
agreed to do that. Probably one of the worst decisions I've ever
made. And the rest is history. They never did the deal with Ralston
and remained independent.

Shanken: How big an investment was it that you sold to them?

Perelman: In dollars, probably $800 million.

Shanken: And did you make a profit on the sale?

Perelman: Yes.

Shanken: A substantial profit?

Perelman: I don't remember what it was. It was in excess of $50
million.

Shanken: What was it? They wanted to remain independent, or they
didn't want Ron Perelman?

Perelman: I think they wanted to remain independent. I think that who
took them out of their independent status was far less significant
than...

Shanken: Who did?

Perelman: Nobody did. They never did the deal with Ralston Purina, and
they just started performing up to the levels that we thought all
along they could perform at and they ultimately did a deal with Warren
Buffett. They did a preferred with Warren Buffett, who gave them the
money to pay back the banks for the stock they bought from us, and
then they took Buffett out. A brilliant deal for Buffett.

Shanken: At what point did you start doing business with Drexel? Early
on?

Perelman: Definitely. Probably 1980.

Shanken: And Drexel was...Michael Milken?

Perelman: It was a whole group of people.

Shanken: You knew Milken intimately. Did the man get a bum rap, or did
the man get what he deserved? What do you think about this whole
chapter in American business history?

Perelman: I can speak only from my personal knowledge. He's
brilliant. He's sensitive. He's caring. He's a unique
individual. During the entire time that we did business together. It
was for a period of six or seven years, and never was there a
suggestion or hint of doing anything that was improper. Not just
illegal, improper. I mean, legality never entered into it. So with us,
there was never even a hint of any impropriety. I think that Michael's
biggest problem was that he created a product that allowed for capital
availability to a whole segment of the business community that did not
have that kind of capital availability before.

Shanken: Companies were at the mercy of the commercial bank, and all
of a sudden with junk bonds they had access to new and more flexible
financing?

Perelman: Resources beyond anybody's wildest imagination. And I think
that this in and of itself concerned a lot of people. It concerned
corporate America; I think it concerned some of the political
structure, and I think there was a great fear over the product and, in
turn, of Michael. I think that brought about a lot of the concern and
the antagonism toward Michael and toward the product.

Shanken: I'm sure from time to time you have thought about Michael
Milken, and I would assume that as any friend you feel a certain
amount of sadness that he spent the past few years in prison and now
he's very sick. Is there a moral to this story?

Perelman: I don't know, you tell me. I think your observation of this
is the same as pretty much anybody else's. I think there was a change
of times. I think that the '80s were very different than the '90s, and
I think looking back at them we wonder how we did some of the things
we did in the '80s, how we bought some of the things we bought on a
personal consumption level. It was a different time than now. I don't
know if there's a moral here. I think there's a shift in attitudes and
values.

Shanken: Is it that had he not been as great a success as he was,
perhaps no one would have bothered to put him out of business and lock
him away?

Perelman: I think there's probably a lot to that. I think there was a
lot of fear created about what was going on in the country, and in
large part, the fears were focused on Michael and the product that he
created. He became sort of the symbol of the '80s.

Shanken: On the flip side, you can ask yourself: Should one man make a
billion and a half dollars a year, and his brother a half billion?

Perelman: But America is not about legislating economic success. I
mean, you might tax it, but don't legislate against it. This country
has been built in large measure by the entrepreneurs who came out with
either a concept, or an idea, or a product or a way of doing business.

Shanken: As far as I know, Ron Perelman is untainted. But you're up
there, and people want to take shots at a guy who's successful,
visible. Do you think sometimes that somebody's going to want to get
you?

Perelman: I think that we've been very diligent about making sure that
what we do is not only legally correct and morally correct but has the
appearance of both. I think that early on I recognized that we would
be doing business in arenas that were new to me. And as such, I
surrounded myself with a lot of talent--legal talent, financial
talent--to make sure that everything we did, was and looked and
smelled proper and correct. And I think that's been very important to
us in the past and will continue to be important to us in the future.

Shanken: One of the things I read about also is that you have
this small group of associates who not only are bright, but you are
all great friends. As the story goes, you have breakfast together
every day, you have lunch together every day. When you and I had lunch
last month, you brought two of them along. Who are these people and
what are their roles in this senior management group?

Perelman: Well, the first senior executive that joined the company was
Bruce Slovin, who had been the second most senior guy at Hanson
Industries--a Harvard-educated lawyer. He started out and continues to
be primarily associated with acquisitions. Then, probably my longest
and dearest and closest friend in the world, Howard Gittis, who was my
lawyer when I was in Philadelphia. He was the managing partner of
Wolf, Block, Schorr and Solis-Cohen and was considering a change of
career about 10 years ago. And I said if you're going to change your
career, there's only one career path that you're going to be on, and
he joined us. He's the senior administrative officer. And then Donald
Drapkin, who had been our partner at Skadden Arps, likewise reached a
point where he was thinking about a change of career, and I made the
same speech to him that I made to Gittis and he joined us at that
time, and he's basically our in-house strategic thinker. He's our
in-house investment banker.

Shanken: Are you like brothers?

Perelman: In a lot of ways, we are. We have been very fortunate to
have within the enterprise a unique relationship.

Shanken: You are very lucky then. What do you say to yourself when you
think about what you've accomplished in your career? Your career isn't
over?

Perelman: I hope not. I try not to think about it in that kind of
way. I think I've been enormously fortunate. I am a great believer
that you don't do everything on your own, that there's in fact a plan,
a grand plan, and I try to minimize the amount of time that any of us
spend thinking about the job that's been done in the past, whether it
was the best we could have done or not. Just concentrate on what we're
doing today and what we'll do in the future. I can appreciate you
asking the question, but I don't think about it.

Shanken: But there have to be moments of weakness. There are perhaps a
dozen people in the world today who have achieved what you have
achieved, pretty much on your own.

Perelman: Yes. With a group of intelligent, well-experienced
individuals as part of the team.

Shanken: But you are the team leader. If you were a failure, the
failure would not be passed on. I mean if you screwed up, you're the
one, not the guys around you.

Perelman: Absolutely right.

Shanken: So, there has to be a moment when you have to take enormous
pride and satisfaction.

Perelman: Very rare. I guess I don't think about the scope of it that
seriously, and I guess I put it in context with what I'd like to see
us doing over the next several years. But what we've done in the past
doesn't take on any importance to me. From a distance you might think
that it would. I really don't think about it in the context of what
we've done in the past or pat ourselves on the back or take great
satisfaction. I mean...